It's Not Just Coffee, It's Starbucks

perjantai 24. helmikuuta 2012

It’s time for my final blog post (sniff). After extensive analysis of the target market and Starbucks’ marketing strategy and capabilities, and an amount of coffee that will surely keep me awake for the rest of 2012, it is time to reveal my ultimate plan for Starbucks’ entry to Finland.

*anticipative drumming*

And here it is!

Market entry strategy – Starbucks in Finland

Entry: My recommendation for Starbucks in entering the Finnish market is to use a combined joint venture and licensing strategy, as I earlier mentioned in my blog, since this structure has been proven very effective for Starbucks in the past, and it minimizes risks.

Brand strategy: Starbucks brand is known worldwide and people go to Starbucks for its brand. That is why the neighborhood store concept that I talked about earlier would not work in a new market like Finland where the name Starbucks is likely to attract people most. Starbucks needs to establish itself here as a strong well-known brand before considering “unbranded” stores.

Product portfolio: Starbucks should introduce some localized products from the beginning already. Finns are fond of their rye bread sandwiches and cinnamon buns, and this is what Starbucks should offer in its store as well. Regarding drinks, a basic selection of special coffees, Frappucinos and teas is good in the beginning. Of course, for Starbucks, a basic selection means around 30 items. This is the usual number of products offered in other European Starbucks stores that I have visited. A small selection of Starbucks branded mugs and coffee tumblers should be introduced in addition to drinks and food, since merchandise is a solid part of Starbucks stores worldwide. Once Starbucks has established itself in Finland with more stores it can expand its selection.

Target group: My recommended target group for Starbucks in Finland is young urban adults, Starbucks’ “core customers”, as previously mentioned in my market segmentation post. An interesting group within this segment is students, as my survey also revealed, and Starbucks should keep this in mind when considering locations. Oh wait, I already did the thinking for them!

Locations: Considering our target customers, Kamppi shopping center would be an excellent choice for the first Starbucks store in Helsinki city. University of Helsinki and Aalto School of Economics are located in the city center and in addition many other students and young adults traffic through Kamppi every day. Another store could be opened in the renewed fashionable Kluuvi shopping center, where many urban adults and students spend their time. Furthermore, it’s just next to the Helsinki University main building. The Central Railway Station would also be a good location with its steady stream of commuters as well as travelers. Other locations in Helsinki could be the Esplanade park (popular among locals and tourists in the summer) and a seasonal store Linnanmäki theme park (young adults, students as well as tourist enjoy this amusement park in the summer time).

Outside Helsinki, potential store locations could be in Espoo and Vantaa (the satellite cities of Helsinki), Turku and Tampere (both student cities), and the big ski centers in Lapland such as Levi, Ylläs and Ruka.

Communication channels: Starbucks should continue in its path of utilizing social media in communicating with customers. As I wrote in my blog post, the interactive social media strategy does not work without all the elements (Facebook, blog, “My Starbucks Idea”) in it. This is why my recommendation for Starbucks is to use all these elements in building its communication strategy in Finland.

Distribution channels: Since Starbucks already has airport locations in Norway and Sweden, Starbucks should establish a centralized warehouse for all Nordic countries in order to reduce costs. As the company is known for using multiple distribution channels, this would also be the case in Finland. They would import coffee and other products to the centralized warehouse and then further distribute them to be sold under the Starbucks brand in their own stores. However, Starbucks could also make distribution agreements to sell their products in grocery stores and shopping centers as well. If things go well, distribution could be further developed to sell their products in hotels and office buildings as well in Finland.

Conclusion: Considering all the above mentioned aspects, my overall recommendation for Starbucks is to use a standardized strategy in Finland.

There you go.

*applause*

You’re most welcome, Starbucks. Now get in here quick!!

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As final words I want to say that I have enjoyed writing this blog and I hope you have enjoyed following it. My work here is done.

keskiviikko 22. helmikuuta 2012

Although coffee is one of the highest in volume of global trading, the
coffee market is very fragmented. This has led to a consolidation process where
coffee is handed off from farmer to collector, collector to miller, miller to
exporter or broker, and finally to importer. The importer or broker then sells
the coffee to large mass-market coffee roasters and producers.

Starbucks however, wishes to maintain the quality of its coffee by
working back up the supply chain to the actual growers. In doing so the company
works on attaining expertise and good relationships with the coffee growers
themselves. As mentioned earlier this has resulted in the company attaining
its supplies from the actual coffee growers, and thus, effectively bypassing
much of the middle market and saving a sufficient amount of funds.

Starbucks uses multiple channels (hybrid) of distribution for its
products. This means the company utilizes more than one distribution design.
Firstly Starbucks sells its products through a direct retail system in
company-owned stores. They import and process coffee and then sell it under
their own brand name in their own stores. However, Starbucks also sells its
products in supermarkets and shopping centers. Additionally Starbucks has
distribution agreements with office coffee suppliers, hotels, and airlines. Using
multiple distribution channels allows the company to reach a wider market,
however, while doing so Starbucks needs to careful with this approach due to
the potential for channel conflict.

In
order to properly evaluate the possibility of bringing Starbucks to Finland, I’ve
made the assumption that Starbucks would be expanding simultaneously to all of
the Nordic countries. I had to make this assumption in order to be able to
logically and thoroughly consider transportation and supply costs. Since Finland is located on the outskirts of Europe, Starbucks would most likely never consider
entering the Finnish market alone. It would be much more logical for Starbucks
to enter all of the Nordic countries at the same time as a joint collaboration.
This is however very unlikely taking into consideration that Starbucks has so
far only entered new markets one country at a time. The reason why I feel that
simultaneously entering Scandinavia would be a
smart idea is because it would then be possible to situate a warehouse and the
top headquarters in one of the Nordic countries, therefore reducing costs
considerably.

Just a quick thought on the practicalities of bringing my favorite coffee brand to Finland :)

tiistai 21. helmikuuta 2012

Hey wait - wait! According to the modern marketing theory, the marketing mix is extented to 7Ps! The three additional Ps form the service aspect of the marketing mix.

People

'We treat our customers as we treat one another, with respect and dignity.' (1)

Starbucks supports the concept “we’re not employees - we're partners” because we passionately share common goals and mutual success”, as it realizes that “happy customers” start with “happy staff”. Starbucks spends much time and efforts to train their staff, they go through coffee making, serving, tasting (staff must know what to advise the customers when those are confused with the wide choice), communication skills…I still can’t forget that admiring girl in Starbucks Barcelona with her “Good morning Kosti, Cinnamon Dolce Latte?”, as I was passing by every morning during my 2 weeks holiday in Spain. And this is the key point of Starbucks service – create a feeling of neighborhood and home warmth, where everyone is happy to see you.

Check this out and you’ll understand why people all over the world come to Starbucks again and again:

One more important point is that Starbucks supports diversity (2). Diversity within the company, diversity of customers, partners and everyone Starbucks interacts with. It is a truly international environment welcoming people from all over the world and treating them equally. This is important as Finland itself is a welcoming country for people from different countries, it supports multinational environment. And that’s great as Starbucks would find enough people among locals and internationals searching for a full-time and part-time job. They just need to have the skills and characteristics important for Starbucks service: ready to be everywhere, active and getting the things fast, customer-oriented, open-minded and friendly.

Process

Starbucks does its best to improve the process of giving services from coffee bins to friendly “Good morning sir, what would you like to drink?” (ah, Barcelona…). Quality of service and quality of coffee are key aspects of Starbucks’ business. The company realizes that customers actually are not interested in the details of how Starbucks runs the business; what they care about is that the system works well and they get products and service of high quality for considerable price. The staff issue has already been discussed above, but I’d like to underline one more time that work and performance of employees play important role in service quality.

How does the process actually work when you are ready to make your choice for one of those delicious drinks? It can be different dependent on the size of the coffee house, the most efficient way is a person who takes the orders, next one taking the payment and a third one making the drinks. This sequence reduces the queue, though still queues are daily issue in many Starbucks location due to the high demand. (6)

Have you seen this terrible queue of people waiting for their take-away coffee in Wayne’s Coffee in the morning in Kamppi? Starbucks takes care about their customers not to be stressed in the queue (especially in the morning at the beginning of working day) and recently the company has introduced new payment services. Contactless payment provided by Barclaycard allows paying for your drink by simply holding their card over the terminal without any pin codes and long authorization. (8) Now this option is available in UK, but I’m confident that Starbucks should bring it to Finland as here people rare have cash and mainly pay by card.

One more stunt is that now you are able to pay for drinks in all Starbucks coffeehouses directly from your iPhone! Application for Android is being developed as well.

In autumn 2011 Starbucks launched the update for its mobile apps and now customers can not only find the nearest Starbucks location and create own specialty coffee drink, but also pay with their mobile phones! These new tricks will dramatically reduce the queues at all outlets and give some more minutes to enjoy your time. (7)

Physical evidence.

Physical evidence is a key component of building customer relationship especially in service sector, people perceive things much better when they can experience them, thus everything customers could see and touch forms the perception of the company and everything it does.

Starbucks offers a combination of product and service and I think it really does a good job in giving customers the best experience, so that they want to try it again and again. Customers pay not just for cup of coffee or tea, but for overall enjoying their time. When you enter the café you see clean, friendly environment, with cozy chairs, sofas, tables, book shelves, bright and “tasty” show case with those alluring pastries, menu with tempting coffee pictures… you see smiling welcoming staff in those green uniforms with Starbucks logo, you hear nice music which complements the atmosphere of the “place to be”.

Mmm, I’m already there… Outstanding design of coffee drinks, cream, cinnamon and other dressings, convenient mugs and high glasses give an impression that you have so much coffee to drink, but it’s suddenly finished very quickly and there is no other option than to go and order one more. What else physical evidence do you need than your perfect cup of special specialty coffee?

What would Starbucks offer in the Finnish market? Usually companies offer similar selection in each market, and Finland is not likely to be an exception. What is the main product beloved by millions and successfully provided by Starbucks since 1971? Right, Coffee. Around 100 different specialty coffee beverages! From Brewed coffee to Frappuccino blended beverages add to these chocolate drinks, tea and juices and you’ll get a head-spinning range of only drinks… It’s probably too much for customers as they would be too much challenged by choosing.

On average Finnish coffee shops offer from 15-30 kinds of coffee-beverages, for Starbucks it’s nothing, thus this is a place to overplay the rivals. 50 drink items probably would be enough. Most of cafes offer traditional menu consisting of filtered coffee (a must in Finland), espresso based drinks, such as Espresso, Americano, Cappuccino, Latte, Glasse, Mocha, Machiato, rarely with different dressings and tastes. Here Starbucks comes and bits all of them with its Frappuccino (a line of blended coffee beverages trademarked and sold by Starbucks).(1)

Perfect collection of tea by Tazo Teas would not leave indifferent those who do not consider themselves as coffee lovers. All coffee range is accompanied with wide offer of pastries salads and breakfast options.

Starbucks product line is not limited with conventional beverages one can drink in coffeehouses, it offers also bottled coffee drinks which are sold in supermarkets, souvenirs, drinkware (glasses, mugs, bottles), coffee machines, coffee&tea presses, grinders and other coffee related equipment.

Besides customers can find CDs with the music playing in Starbucks coffeehouses and one more things need to be mentioned Ethos water, 5 cents from each sold bottle in the world go to Ethos Water Fund, which is created to help children from emerging countries to have clean water “So far more than $6 million has been granted to help support water, sanitation and hygiene education programs in water-stressed countries – benefiting more than 420,000 people around the world” (2).

Starbucks pricing strategy is based on quality, differentiation and authority value. (4) Starbucks offers products of high quality and provide excellent service for customers, they are ready to pay more for better quality and better service. Starbucks should maintain the quality of coffee sourcing and the level of services to justify higher prices. Starbucks spends much efforts to differentiate itself from the competitors: new kinds of specialty coffee drinks, interior design to make time spent at Starbucks coffeehouses even more pleasant, new services (Starbucks goes mobile), Starbucks social network community and etc, all this to create additional value for customers for which they are ready to pay more. Overall Starbucks is a strong global brand positioning itself as a coffee expert and its products are priced according to the upscale image related to the brand.

I have been exploring coffee prices in Finland and it seems that local competitors have relatively the same pricing level I even personally visited two coffee chains popular in Finland. So If you go to Robert’s Coffee you will pay around 3.50-3.90 Euro (depends on the type: with or without dressings) for Latte of standard size and 4.10-5.10 Euro for Latte in Wayne’s Coffee. In other local cafes prices are approximately the same, the only exception is McDonalds, where you can buy Latte for 2 Euro, but McDonalds is unlikely to make a real competition to Starbucks, as it has different concept and objectives. Starbucks prices its coffee at the same level in Europe, in Belgium, Germany and Switzerland tall Latte costs 3.75 Euro, which totally fits Finnish local prices and won’t be considered as expensive. Though, it should be taken into account that the biggest target group in Finland is students, a price sensitive segment, therefore special offers and student discounts would make Starbucks alternative to other coffee places more attractive (e.g. 10% KY members).

Place

Currently Starbucks opens one cafe in Vantaa-Airport and soon second Starbucks will be opened there as well, so that not only passengers but also guests could enjoy the taste of specialty coffee. Overall the company plans to open around 15-20 coffeehouses across the Finland. (5)

According to the mission Starbucks can be found in every neighborhood. Settling in Helsinki area could be a next step after the airport. The best location is of course central part, in a close distance to main universities Aalto, Hanken, University of Helsinki. Kamppi seems to be a perfect place, as it’s also a bus terminal that provides an intensive flow of people every day. However, it is unlikely that there are any places available and competitive environment in this shopping mall is very hot, though for such a big flow of people there wouldn’t be a lack of customers, especially considering the fact that there are no cozy and warming places to enjoy specialty coffee. The near-sea area down to Esplanadi park is very popular among tourists especially in spring-summer season. Linnamaki theme park could be also good option for Starbucks. Starbucks needs a good research about the location as Helsinki center is quite overloaded with different stores, cafes, and restaurants. One more solution could be Espoo and Vantaa satellite-cities of Helsinki. Competition in specialty coffee segment is not so tough and customers don’t have a big choice of “chill-out places”.

As for the other “places to be” in Finland I think Starbucks should consider Turku, Tampere and some northern cities where big skiing centres are located. Lappeenranta and may be some other cities, close to the boarder with Russia, should be also considered by Starbucks, as these places are very popular among Russian tourists. However in this case company should focus on its “neighbourhood” approach even more to make Starbucks look as much local as possible (new logo will help as well) , because although Russian tourist appreciate high quality coffee, some of them are not fond of everything related to American culture.

PromotionThere couldn’t be better time for Starbucks to enter Finnish market than the year when Helsinki is named a World Design Capital 2012! Sponsorship of events included in WDC Program could be a good promotion not only for Starbucks coffee but its social responsibility as well. Starbucks with its creativity freshness and trendiness could pretend to be one of the accompanying symbols of design. New services and enhanced customer communication would add more value for the Starbucks coffee lovers. Starbucks has more than 27 million fans on Facebook and around 2 million followers in Twitter. Social networks aid to launch new service eGift – you can treat your friend by buying her favorite Cinamon Dolce Crème Frappuccino or Caramel Macciato or whatever she likes, you just deposit some money on the gift card and send it to your friend by e-mail or regular mail. A perfect way for a company not to spend money for advertising and to attract new customers.

(Source: www.starbucks.com)

Starbucks spends only 1 percent of its revenues (about $30 million) in marketing and advertising. Instead, company highly relies on word-of-mouth as well as on the ability of Starbucks brand to market itself. Well it’s quite reasonable, as Starbucks has reached that level of brand awareness and loyalty when it doesn’t need conventional advertising tools. (6)

To promote Starbucks in student environment it’s crucial to make it a place where students want to go in their free time. To achieve this company can sponsor some student events carried out by student organizations (which are the powerful sector in Finland by the way), to organize student intercultural events and promote foe instance new drinks and pastries inspired by other cultures cuisine. Morning take away Frappuccino with student discount would be a perfect start of the day at school. Facebook promo actions and mobile apps by Starbucks would warm up the interest of Finnish target groups as well.

New brand strategy of the company is related to the logo change, according to Senior Vice President of Global design the idea of the change is to give to each Starbucks café a “community personality”. First trial has been done with “15ht Avenue Coffee and Tea” in Seattle, name for this Starbucks coffeehouse is taken from the name of neighborhood, and the atmosphere inside reflects the local features. It’s hard to say whether this stunt would be successful in Finland. But currently customization is a global trend, so why not implement this approach in the country with the most advanced technologies and a developed economy. New brand identity is called “to eliminate ambiguity in our non-coffee products. For instance, in some of our international markets, we offer teas called “Starbucks Coffee Tea” – a label that is confusing, because there’s no coffee in it!” (1)

Starbucks Brand vision: to become the most popular (the best) coffee& coffeehouse brand in Finland.

Starbucks Brand Promise: to offer the coffee of high quality and to provide the best place to enjoy your time with friends and share a perfect cup of coffee beverages as well as the great customer experience and greatest service. Best coffee. Best place. Best service. To fulfill the Starbucks mission: “to inspire and nurture the human spirit – one person, one cup and one neighborhood at a time.” (2)

Starbucks Brand Delivery: to open new coffeehouses corresponding to Starbucks’ concept of friendly intimate and cozy place for people to get together and offer there coffee and non-coffee drinks, pastries and other production of Starbucks such as packaged coffee and tea, mugs, glasses, souvenirs, coffee&tea accessorizes; continue to sell Starbucks’ cold drinks in supermarkets; promo-actions; sponsorship of social events; online store.

Starbucks Brand Positioning: Starbucks tends to become a first thing people image thinking about coffee and leisure. Starbucks as a best coffee to drink in a comfortable place or take on the way to office, Starbucks as a best place to get warm with cup of hot drink in cold winter evening in warming atmosphere with friends and pleasant music. Starbucks as a company which knows what customer wants and does it. Starbucks as not just coffee&place but the community, where everyone can share ideas and wishes to make Starbucks closer to its customers. Unique customer experience (all customers proposals and ideas must be heard), constant upgrade of specialty coffee menu, high quality of products, social responsibility, sustainable sourcing (“100% of the espresso is sourced under the Starbucks 'Shared Planet' and is 100% Fairtrade certified” (3)), following the latest world’s trends, dynamic and vivid atmosphere make Starbucks fundamentally different from its Finnish rivals. All the points of Starbucks positioning are stressed at the following picture: